The Dow Drops And The Possibility Of Recession Looms

MINNEAPOLIS (WCCO) — Traders on Wall Street say fear has taken over, as the Dow Jones Industrials fell 634.76 points — the sixth worst point decline for the Dow in 122 years and the worst drop since December 2008.

Monday’s trading day was the first since Standard and Poors (S&P) downgraded America’s debt from AAA to AA+. Every stock in the S&P 500 Index declined Monday, but the downgrade wasn’t the only catalyst for that decline.

Investors and economists are now worrying about a slowing economy. The growth scare, as they call it, is a real thing.

“Markets will rise and fall, but this is the United States of America,” said President Barack Obama. “No matter what some agency may say, we’ve always been and will be a Triple ‘A’ country.”

The president tried, but couldn’t calm the market. He blamed the downgrade on political gridlock, saying we can’t reduce the debt without raising taxes and cutting Medicare.

“I think there could be another recession by the definition of negative economic growth,” said Dr. David Vang with the University of St. Thomas. He added that we might be in a recession right now.

Economic growth in the first half of the year was the slowest since the end of the recession. The economy grew at a 1.3 percent annual rate from April through June, below economists’ expectations. It expanded at a 0.4 percent rate in the first quarter.

Manufacturing and service industries just barely grew last month, and job growth slowed. The 117,000 jobs created in July was still well below the 215,000 that employers added in February, March and April, on average.

“Having this second dip or second recession means this period of unemployment will probably continue on for another year,” Vang said.

Dipping back into recession could also drive stocks even lower, and investment strategists say that’s the time to buy. The S&P 500 has historically bounced back, anywhere from 6 percent to 17 percent in a year from its steepest declines, once the sell-off has subsided.

Vang suggests that people should continue contributing to their 401Ks.

“The good news is that you’re buying that close to an all time low, and 20 years from now, you’ll be glad you did,” he said.

Vang says that a government solution might not happen anytime soon. The government has “run out of bullets,” he said.

Economists point to the things the government has already tried, like spending more to stimulate the economy and lowering interest rates. In fact, one key interest rate is already at a record of nearly zero, where it’s been for three years.

S&P blamed Washington for not doing enough to cut the nation’s debt and get its finances in order. It also warns another downgrade could be on the way.

The Dow has lost 15 percent of its value in two weeks. More than a 1,000 stocks on the New York Stock Exchange hit 52 week lows, and U.S. markets have lost well over $1 trillion in value in just the past 11 trading days.

There’s no telling where the bottom lies.

  • O-done-a

    Here’s the deal so take what you want from it. I am gladly never going to post anything on cco again since there are far more intelligent groups to exchange ideas with elsewhere (minus a small few of you). I have sounded the alarms before for ya and I’m gonna do it again. If you have a 401K, Roth IRA… you need to act now. If you have a pension—well, you’re on your own. I realize this all depends on age and other dynamics so figure out where you fit prior to talking to any financial advisors. RESEARCH! DO NOT buy a house!! If you can sell your house—sell it and find a better deal, don’t “buy up”—definitely buy-down. If you can refinance (for a lower rate—no taking cash out!) DO IT. If you hold stocks, don’t do anything right now. Wait for a rally (even a tiny rally) and sell—I like the UDN etf. Don’t buy long term bonds of any kind—nothing over 5 years. Teach yourself about what inflation means—really means. Expect interest rate spikes. Take this info to your family. Print it and tack it up. Start saving where you can and when you can. If you don’t NEED it, live without it. If you have a “whole life” insurance policy or any kind of “investment” life insurance policy—good bajeeze, dump it now!! You should never have had it in the first place. Keep all eyes on the FED and in the upcoming campaigns listen for buzz words—we need to hear social security and medicare REFORM (adjusted by income) and not CUTS. This isn’t partisan opinion—this is fact. Good luck. (And for that one willing person—keep re-posting this until it can’t be posted anymore)

    • This guy

      @ O-done-a
      For a second I thought you were serious until the part about Life Insurance. Drop the only guaranteed portion of your portfolio at the worst possible time!? What nonsense! You sir, have a fantastic sense of humor! I applaud thy wit.

      • lizz

        Even I know that your s’posed to have term insurance and not an investment life policy.

  • @ O-done-a

    What do you mean “if you have a 401K, you need to act now”? What the heck is that supposed to mean?

  • "The Downgrade Doom Loop"

    August 8, 2011 by Paul Krugman
    The Downgrade Doom Loop
    It’s not the whole story, but something like this threatens to develop:

    1. US debt is downgraded, sparking demands for more ill-advised fiscal austerity

    2. Fears that this austerity will depress the economy send stocks down

    3. Politicians and pundits declare that worries about US solvency are the culprit, even though interest rates have actually plunged

    4. This leads to calls for even more ill-advised austerity, which sends us back to #2

    Behold the power of a stupid narrative, which seems impervious to evidence.

    • Fast Freddie

      Paul Krugman worked for Enron, so figure him out. Every article he has ever written is about printing and spending more money that we don’t have. He didn’t even see the “housing bubble” coming

      Here’s the answer:
      1. Bring the troops home: all of them, from everywhere
      2. Get rid of the departments (education,agriculure,Interiror), they are a waste and lead to croniysm
      3. Anchor the gold in Fort Knox(If it’s there) to some new currency(even if it’s .001 grams), this way we wouldn’t have to borrow or print funny money
      4. Shut down the federal reserve, this is a corrupt monoploy that services the wicked

      • Not so fast Fred.

        Not so fast Fred.
        Krugman worked for Enron solely as an economic advisor, it was Enron’s way of portraying a good image hiring top notch Economist to advise them. Krugman was not a CEO, CFO and had nothing to do with the finances of the corporation. But some the Commander in Chief at the time, BUSH, had a much closer connection to Enron. It was thanks to Bush that the Enron was able to defraud the people of California. Through deregulation pushed by none other than BUSH, Enron was able to nameplate the power grid and cause power outages, claiming they were due to huge demands. Energy prices skyrocketed and guess who profited?

  • Mark from Minnesota Tax Waste

    Obama blaming the Tea Party? It takes a strong character to admit to taking the blame. He does not have it. Both the Dems and the Rep are to blame as well.

  • dan

    Obama should have spent more time curbing the debt in his first 2 years rather than spending spree that he and the Democrats were on. They controlled everything and have no excuse. To now come back and blame Republicans is a joke. Again leading from behind!

    • jeff

      i have to agree with you dan. obama certainly is not without his mistakes. no leader is.

      • Phid

        No, no leader is without mistakes…but not all leaders will try to dodge blame so much and throw it on to the other side. The Democrats had a majority in both Senate and the House, and together with Obama they could not fix the economy. The stimulus failed, lower unemployment would have happened without it (according to their own projections), and there is no real hope in sight. What do the Democrats do? They blame the Tea Party – a grassroots ideological movement with no official representation in any national office. How’s that for leadership?

  • Think again Fred

    Krugman only worked for Enron for a brief period in 1999. As far as the housing bubble, he talked and wrote about it as early as 2005-2006. Well before the bust. You may not like him because he is not a Rightwing-deregulate-the-markets-economist, but non the less he is a good economist.

  • Nevea

    These topics are so cfnosuing but this helped me get the job done.

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